CADIZ INC 10-K

ITEM 9A. Controls and Procedures Disclosure Controls and Procedures We have established disclosure controls and procedures to ensure that material information related to the Company, including its consolidated entities, is accumulated and communicated to senior management, including Chief Executive Officer (the “Principal Executive Officer”) and Chief Financial Officer (the “Principal Financial Officer”) and to our Board of Directors. Based on their evaluation as of December 31, 2023, our Principal Executive Officer and Principal Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and such information is accumulated and communicated to management, including the principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosures. Management ’ s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the criteria in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under that framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2023. Changes in Internal Control Over Financial Reporting In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was no change identified in the Company's internal control over financial reporting that occurred during the last fiscal quarter ended December 31, 2023, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 30 Cadiz Inc. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ITEM 9B. Other Information Not applicable. ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. 31 Cadiz Inc. PART III ITEM 10. Directors, Executive Officers and Corporate Governance The information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors which we intend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2023. ITEM 11. Executive Compensation The information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors which we intend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2023. ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors which we intend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2023. ITEM 13. Certain Relationships and Related Transactions, and Director Independence The information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors which we intend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2023. ITEM 14. Principal Accounting Fees and Services The information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors which we intend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2023. 32 Cadiz Inc. PART IV ITEM 15. Exhibits, Financial Statement Schedules 1. Financial Statements. See Index to Consolidated Financial Statements. 2. Financial Statement Schedule. See Index to Consolidated Financial Statements. *** 3. Exhibits. The following exhibits are filed or incorporated by reference as part of this Form 10-K. **3.1 Cadiz Certificate of Incorporation, as amended **3.2 Cadiz Bylaws, as amended **3.3 Certificate of Designation of Series 1 Preferred Stock of Cadiz Inc. **3.4 Certificate of Designation of 8.875% Series A Cumulative Perpetual Preferred Stock of Cadiz Inc. **4.1 Form of Senior Indenture **4.2 Form of Subordinated Indenture **4.3 Deposit Agreement, dated effective as of July 2, 2021, by and among the Company, Continental Stock Transfer & Trust Company, as depositary, and the holders of the depositary receipts issued thereunder **4.4 Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934 **4.5 Warrant No. W-1 to Purchase Common Stock of Cadiz Inc. dated as of July 2, 2021 **4.6 Warrant No. W-2 to Purchase Common Stock of Cadiz Inc. dated as of July 2, 2021 **4.7 Common Stock Purchase Warrant dated as of March 6, 2024 **10.1 Limited Liability Company Agreement of Cadiz Real Estate LLC dated December 11, 2003 **10.2 Amendment No. 1, dated October 29, 2004, to Limited Liability Company Agreement of Cadiz Real Estate LLC **10.3 Amendment No. 2 dated March 5, 2013, to Limited Liability Company Agreement of Cadiz Real Estate LLC 33 Cadiz Inc. **10.4 Longitudinal Lease Agreement dated September 17, 2008 between Arizona & California Railroad Company and Cadiz Real Estate, LLC †**10.5 2019 Equity Incentive Plan, as amended **10.6 Form of Option Agreement with Santa Margarita Water District **10.7 Option Agreement with Golden State Water Company dated June 25, 2010 **10.8 Key Terms for First Amendment to Option and Golden State Water Company’s Conditional Exercise of its Option dated March 13, 2024 **10.9 Option Agreement with Suburban Water Systems dated October 4, 2010 **10.10 Option Agreement with California Water Service Company dated December 1, 2011 **10.11 Form of Memorandum of Understanding by and among Cadiz Inc., County of San Bernardino and Santa Margarita Water District **10.12 First Amendment to the Memorandum of Understanding, dated November 2, 2023, by and among the Santa Margarita Water District, Cadiz Inc., Fenner Gap Mutual Water Company and San Bernardino County **10.13 Water Purchase and Sale Agreement among Cadiz Inc., Cadiz Real Estate LLC, Fenner Valley Mutual Water Company and Santa Margarita Water District dated July 31, 2012 **10.14 Groundwater Management, Monitoring, and Mitigation Plan for the Cadiz Valley Groundwater Conservation, Recovery and Storage Project approved by the Santa Margarita Water District and the County of San Bernardino Board of Supervisors effective October 1, 2012 **10.15 Summary of Key Terms Between Antelope Valley – East Kern Water Agency and Fenner Gap Mutual Water Company dated May 24, 2023 **10.16 Agreement for the Delivery of Water Made Available by Cadiz Inc. and Fenner Gap Mutual Water Company to Public Water Systems, dated February 28, 2024, among Cadiz Inc., Cadiz Real Estate LLC, Fenner Gap Mutual Water Company and Fontana Water Company **10.17 Term Sheet for the Delivery of Water Made Available by Cadiz Inc. and Fenner Gap Mutual Water Company to Santa Margarita Water District in the Northern Pipeline, dated February 28, 2024, among Cadiz Inc., Fenner Gap Mutual Water Company and Santa Margarita Water District **10.18 Track Utilization Agreement dated September 16, 2013, between Arizona & California Railroad Company and Cadiz Real Estate LLC †**10.19 Amended and Restated Employment Agreement between Timothy J. Shaheen and Cadiz Inc. dated June 13, 2014 †**10.20 Amendment No. 1 to Amended and Restated Employment Agreement between Timothy J. Shaheen and Cadiz Inc. dated March 10, 2020 34 Cadiz Inc. †**10.21 Amendment No. 2 to Amended and Restated Employment Agreement between Timothy J. Shaheen and Cadiz Inc. dated as of May 21, 2020 †**10.22 Employment Agreement between Cadiz Inc. and Stanley E. Speer dated as of May 21, 2020 **10.23 Form of Water Purchase and Sale Agreement, dated as of December 29, 2014, by and between Cadiz Inc. and San Luis Water District **10.24 Amended and Restated Lease Agreement, dated as of February 8, 2016, by and among Cadiz Real Estate LLC, Cadiz Inc. and Fenner Valley Farm, LLC **10.25 Purchase and Sale Agreement between El Paso Natural Gas Company, LLC, and Cadiz Inc. dated December 31, 2018 **10.26 First Amendment to Purchase and Sale Agreement dated February 3, 2020 by and between El Paso Natural Gas Company, LLC, a Delaware limited liability company and Cadiz Inc., a Delaware corporation **10.27 Second Amendment to Purchase and Sale Agreement dated December 4, 2020 by and between El Paso Natural Gas Company, LLC, a Delaware limited liability company and Cadiz Inc., a Delaware corporation **10.28 Conversion and Exchange Agreement, dated March 5, 2020, by and between Cadiz Inc. and Elkhorn Partners Limited Partnership **10.29 Registration Rights Agreement, dated March 5, 2020, by and among Cadiz Inc. and the other parties thereto **10.30 Underwriting Agreement, dated as of June 29, 2021, by and among the Company and B. Riley Securities, Inc., as representative of the several underwriters named therein **10.31 Credit Agreement, dated as of July 2, 2021, by and among Cadiz Inc. and Cadiz Real Estate LLC as borrowers, the lenders from time to time party thereto, and B. Riley Securities, Inc., as administrative agent **10.32 Security Agreement, dated as of July 2, 2021, made by Cadiz Inc., Cadiz Real Estate LLC, in favor of B. Riley Securities, Inc. **10.33 First Amendment to Credit Agreement, dated as of February 2, 2023, by and among Cadiz Inc. and Cadiz Real Estate LLC as borrowers, the lenders from time to time party thereto, and B. Riley Securities, Inc. as administrative agent **10.34 Second Amendment to Credit Agreement, dated as of August 14, 2023, by and among Cadiz Inc. and Cadiz Real Estate LLC as borrowers, the lenders from time to time party thereto, and B. Riley Securities, Inc. as administrative agent **10.35 Third Amendment to Credit Agreement and First Amendment to Security Agreement, dated as of March 6, 2024, by and among Cadiz Inc., Cadiz Real Estate LLC, ATEC Water Systems, LLC and Octagon Partners LLC as borrowers, and the lenders party thereto 35 Cadiz Inc. **10.36 Deed of Trust, Assignment of Leases and Rents, Security Agreement, Financing Statement and Fixture Filing, dated as of July 2, 2021 **10.37 First Amendment to Deed of Trust, Assignment of Leases and Rents, Securities Agreement, Financing Statement and Fixture Filing, dated as of February 2, 2023 †**10.38 Employment Agreement between Cadiz Inc. and Susan P. Kennedy dated as of February 4, 2022 **10.39 Form of Board Observer and Nomination Right Agreement **10.40 Amendment No. 1 to Board Observer and Nomination Right Agreement, dated as of March 6, 2024, by and between Cadiz Inc. and Heerema International Group Services S.A. **10.41 Form of Registration Rights Agreement **10.42 Form of Amendment No. 1 to Registration Rights Agreement **10.43 Form of Amendment No. 2 to Registration Rights Agreement **10.44 Amendment No. 3 to Registration Rights Agreement, dated as of March 6, 2024, by and between Cadiz Inc. and Heerema International Group Services S.A. **10.45 Asset Purchase Agreement, dated as of October 21, 2022, between ATEC Systems, Inc., David Ketchum and Donna Ketchum and Cadiz Inc. **10.46 Amended and Restated Limited Liability Company Agreement of ATEC Water Systems, LLC dated as of November 6, 2022 *21.1 Subsidiaries of the Registrant *23.1 Consent of Independent Registered Public Accounting Firm *31.1 Certification of Scott Slater, Chief Executive Officer of Cadiz Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *31.2 Certification of Stanley E. Speer, Chief Financial Officer and Secretary of Cadiz Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 36 Cadiz Inc. *32.1 Certification of Scott Slater, Chief Executive Officer of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *32.2 Certification of Stanley E. Speer, Chief Financial Officer and Secretary of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *97.1 Cadiz Clawback and Forfeiture Policy * 101.INS Inline XBRL Instance Document * 101.SCH Inline XBRL Taxonomy Extension Schema * 101.CAL Inline XBRL Taxonomy Extension Calculation * 101.DEF Inline XBRL Extension Definition * 101.LAB Inline XBRL Taxonomy Extension Label * 101.PRE Inline XBRL Taxonomy Extension Presentation 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) † Management contract or compensatory plan or agreement. * Filed herewith. ** Previously filed. *** All financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto. ITEM 16. Form 10-K Summary None. 37 Cadiz Inc. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. CADIZ INC. By: /s/ Susan P. Kennedy Susan P. Kennedy, Chief Executive Officer Date: March 28, 2024 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. Name and Position Date /s/ Susan P. Kennedy March 28, 2024 Susan Kennedy, Chair and Chief Executive Officer (Principal Executive Officer) /s/ Stanley E. Speer March 28, 2024 Stanley E. Speer, Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Stephen E. Courter March 28, 2024 Stephen E. Courter, Director /s/ Maria Dreyfus March 28, 2024 Maria Dreyfus, Director /s/ Maria Echaveste March 28, 2024 Maria Echaveste, Director /s/ Winston H. Hickox March 28, 2024 Winston H. Hickox, Director /s/ Barbara Lloyd March 28, 2024 Barbara Lloyd, Director /s/ Kenneth Lombard March 28, 2024 Kenneth Lombard, Director /s/ Richard Polanco March 28, 2024 Richard Polanco, Director /s/ Carolyn Webb de Macias Carolyn Webb de Macias, Director March 28, 2024 38 Cadiz Inc. Cadiz Inc. Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID Number 238 ) F-2 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022 F-4 Consolidated Balance Sheets as of December 31, 2023 and 2022 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 F-6 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023 and 2022 F-7 Notes to the Consolidated Financial Statements F-8 F-1 Cadiz Inc. Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Cadiz Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Cadiz Inc. and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-2 Cadiz Inc. Liquidity Assessment As described in Note 2 to the consolidated financial statements, management has prepared the Company’s consolidated financial statements on a going concern basis, which contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred losses of $31.4 million for the year ended December 31, 2023. The Company had working capital of $2.2 million as of December 31, 2023 and used cash in operations of $20.9 million for the year ended December 31, 2023. Management assesses whether the Company has sufficient liquidity to fund its costs for the next twelve months from the financial statement issuance date. Management evaluates the Company’s liquidity to determine if there is substantial doubt about the Company’s ability to continue as a going concern. In the preparation of this liquidity assessment, management applies judgment to estimate the significant assumptions related to the projected cash flows of the Company, including the following: (i) projected cash outflows, (ii) projected cash inflows, (iii) categorization of expenditures as discretionary versus non-discretionary and (iv) ability to raise capital. The cash flow projections are based on known or planned cash requirements for operating costs as well as planned costs for project development. The principal considerations for our determination that performing procedures relating to the liquidity assessment is a critical audit matter are the significant judgment by management when assessing whether the Company has sufficient liquidity and a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s liquidity assessment and the significant assumptions related to projected cash outflows, projected cash inflows, categorization of expenditures as discretionary versus non-discretionary, and ability to raise capital. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (i) testing management’s process for assessing whether the Company has sufficient liquidity; (ii) evaluating the appropriateness of the projected cash flow model; (iii) testing the completeness and accuracy of the underlying data used in the projected cash flow model; and (iv) evaluating the reasonableness of management’s significant assumptions related to projected cash outflows, projected cash inflows, categorization of expenditures as discretionary versus non-discretionary, and ability to raise capital. Evaluating management’s assumptions related to projected cash outflows, projected cash inflows, categorization of expenditures as discretionary versus non-discretionary, and ability to raise capital involved evaluating whether the assumptions used were reasonable considering (i) current and past performance of the Company; (ii) management’s historical forecasting accuracy; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. /s/ PricewaterhouseCoopers LLP Los Angeles, California March 28, 2024 We have served as the Company’s auditor since at least 1995. We have not been able to determine the specific year we began serving as auditor of the Company. F-3 Cadiz Inc. Consolidated Statements of Operations and Comprehensive Loss December 31, (In thousands, except per share data) 2023 2022 Total revenues $ 1,991 $ 1,501 Costs and expenses: Cost of Sales 2,887 2,067 General and administrative 18,797 15,342 Depreciation 1,247 654 Total costs and expenses 22,931 18,063 Operating loss ( 20,940 ) (16,562 ) Interest expense, net ( 4,944 ) (8,263 ) Loss on derivative liability ( 220 ) - Loss on early extinguishment of debt ( 5,331 ) - Loss before income taxes ( 31,435 ) (24,825 ) Income tax expense ( 11 ) (7 ) Gain (loss) from equity-method investments - 40 Net loss and comprehensive loss $ ( 31,446 ) $ (24,792 ) Less: Preferred stock dividend requirements $ 5,106 5,106 Net loss and comprehensive loss applicable to common stock $ ( 36,552 ) $ (29,898 ) Basic and diluted net loss per common share $ ( 0.56 ) $ (0.60 ) Basic and diluted weighted-average shares outstanding 65,656 49,871 See accompanying notes to the consolidated financial statements. F-4 Cadiz Inc. Consolidated Balance Sheets ($ in thousands, except per share data) December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 4,502 $ 9,997 Restricted Cash - 1,288 Accounts receivable 904 454 Inventories 2,106 316 Prepaid expenses and other current assets 508 380 Total current assets 8,020 12,435 Property, plant, equipment and water programs, net 87,217 84,138 Long-term deposit/prepaid expenses 420 420 Goodwill 5,714 5,714 Right-of-use asset 431 553 Long-term restricted cash 134 2,497 Other assets 5,438 5,030 Total assets $ 107,374 $ 110,787 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,245 $ 1,107 Accrued liabilities 1,170 1,545 Current portion of long-term debt 182 140 Dividend payable 1,288 1,288 Contingent consideration liabilities 1,450 1,450 Short-term deferred revenue 373 - Operating lease liabilities 127 109 Total current liabilities 5,835 5,639 Long-term debt, net 37,711 48,950 Long-term lease obligations with related party, net 22,877 20,745 Long-term operating lease liabilities 318 444 Deferred revenue 625 750 Other long-term liabilities 41 36 Total liabilities 67,407 76,564 Stockholders' equity: Preferred stock - $ .01 par value, 100,000 shares authorized at December 31, 2023, and December 31, 2022; shares issued and outstanding – 329 at December 31, 2023, and December 31, 2022 1 1 8.875 % Series A cumulative, perpetual preferred stock - $ .01 par value; 7,500 shares authorized at December 31, 2023, and December 31, 2022; shares issued and outstanding – 2,300 at December 31, 2023, and 2,300 at December 31, 2022 1 1 Common stock - $ 0.01 par value; 85,000,000 shares authorized at December 31, 2023, and 70,000,000 authorized at December 31, 2022; shares issued and outstanding: 66,710,795 at December 31, 2023, and 55,823,810 at December 31, 2022 665 556 Additional paid-in capital 679,150 636,963 Accumulated deficit ( 639,850 ) ( 603,298 ) Total stockholders' equity 39,967 34,223 Total liabilities and stockholders' equity $ 107,374 $ 110,787 See accompanying notes to the consolidated financial statements. F-5 Cadiz Inc. Consolidated Statements of Cash Flows For the Year Ended December 31, ($ in thousands) 2023 2022 Cash flows from operating activities: Net loss $ ( 31,446 ) $ ( 24,792 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 1,247 654 Amortization of debt discount and issuance costs 414 2,414 Amortization of right-of-use asset 122 18 Interest expense added to loan principal 992 - Interest expense added to lease liability 2,107 1,866 Gain/Loss on equity method investments - ( 40 ) Loss on early extinguishment of debt 5,331 - Compensation charge for stock and share option awards 1,496 1,876 Unrealized loss on derivative liabilities 220 - Changes in operating assets and liabilities: Accounts receivable ( 450 ) ( 184 ) Inventories ( 1,790 ) ( 236 ) Prepaid expenses and other current assets ( 128 ) 311 Other assets ( 408 ) ( 684 ) Accounts payable 937 113 Lease liabilities ( 108 ) ( 18 ) Deferred revenue 248 - Other accrued liabilities 292 103 Net cash used in operating activities ( 20,924 ) ( 18,599 ) Cash flows from investing activities: Additions to property, plant and equipment and water programs ( 5,787 ) ( 3,376 ) Contributions to equity-method investments - ( 213 ) Distributions from equity-method investments - 217 Payments for acquisitions, net of cash acquired - ( 750 ) Net cash used in investing activities ( 5,787 ) ( 4,122 ) Cash flows from financing activities: Net proceeds from issuance of common stock 38,490 21,636 Dividend payment ( 5,106 ) ( 5,106 ) Proceeds from the issuance of long-term debt 233 287 Issuance costs of long-term debt ( 27 ) - Principal payments on long-term debt ( 15,164 ) ( 170 ) Costs for extinguishment of debt ( 600 ) - Taxes paid related to net share settlement of equity awards ( 261 ) - Net cash provided by financing activities 17,565 16,647 Net (decrease) increase in cash, cash equivalents and restricted cash ( 9,146 ) ( 6,074 ) Cash, cash equivalents and restricted cash, beginning of period 13,782 19,856 Cash, cash equivalents and restricted cash, end of period $ 4,636 $ 13,782 See accompanying notes to the consolidated financial statements. F-6 Cadiz Inc. Consolidated Statements of Stockholders ’ Equity 8.875% Series A Cumulative Additional Total Common Stock Preferred Stock Perpetual Preferred Stock Paid-in Accumulated Stockholders’ Shares Amount Shares Amount Shares Amount Capital Deficit Equity Balance as of December 31, 2021 43,656,169 $ 435 329 $ 1 2,300 $ 1 $ 613,572 $ ( 573,400 ) $ 40,609 Issuance of shares pursuant to direct offerings 11,857,140 118 - - - - 21,518 - 21,636 Dividends paid and declared on 8.875 % series A cumulative perpetual preferred shares ($ 2,220 per share) - - - - - - - ( 5,106 ) ( 5,106 ) Stock-based compensation expense 310,501 3 - - - - 1,873 - 1,876 Net loss and comprehensive loss - - - - - - - ( 24,792 ) ( 24,792 ) Balance as of December 31, 2022 55,823,810 $ 556 329 $ 1 2,300 $ 1 $ 636,963 $ ( 603,298 ) $ 34,223 Issuance of shares pursuant to direct offerings 10,500,000 105 - - - - 38,385 - 38,490 Dividends paid and declared on 8.875 % series A cumulative perpetual preferred shares ($ 2,220 per share) - - - - - - - ( 5,106 ) ( 5,106 ) Reclassification of derivative liability - - - - - - 2,570 - 2,570 Stock-based compensation expense 386,985 4 - - - - 1,232 - 1,236 Net loss and comprehensive loss - - - - - - - ( 31,446 ) ( 31,446 ) Balance as of December 31, 2023 66,710,795 $ 665 329 $ 1 2,300 $ 1 $ 679,150 $ ( 639,850 ) $ 39,967 See accompanying notes to the consolidated financial statements. F-7 Cadiz Inc. Notes To The Consolidated Financial Statements NOTE 1 – DESCRIPTION OF BUSINESS Cadiz Inc. (“Cadiz or the “Company”) is a water solutions provider with a unique combination of land, water, pipeline and water filtration technology assets strategically located in Southern California between major water systems serving population centers in the Southwestern United States. The Company’s portfolio of assets includes 2.5 million acre-feet of water supply, 220 miles of existing, buried pipeline, 1 million acre-feet of groundwater storage capacity, versatile, scalable, and cost-effective water filtration technology. The Company provides products and services to public water systems, government agencies and commercial clients that address the emerging threat of water scarcity and affordability in a region of the world facing severe challenges from climate change. The Company owns approximately 46,000 acres of land with high-quality, naturally-recharging groundwater resources in Southern California’s Mojave Desert (“Cadiz Property”). Land holdings with vested water rights were assembled by the Company’s founders in the early 1980s, relying on NASA imagery that identified a significant desert aquifer system at the base of a vast Southern California watershed. Since its founding in 1983, the Company has developed its land assets in California for sustainable farming and groundwater management, and in recent years, has invested in wellfield and pipeline infrastructure as well as water filtration technology that will enable The Company to play a critical role in serving the needs of people and communities that lack access to clean, reliable and affordable water. The Company’s supply, storage and pipeline assets are located in a remote area of eastern San Bernardino County that sits at the crossroads of major highway, rail, energy, and water infrastructure between California’s primary water supply systems, the Colorado River Basin and the State Water Project. As a result, the Cadiz Water Conservation and Storage Project is well positioned to assist public water agencies in storing and managing unpredictable water supplies and provide reliable, affordable water supplies to chronically underserved areas of California. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The Consolidated Financial Statements of the Company have been prepared on a going concern basis, which contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred losses of $ 31.4 million and $ 24.8 million for the years ended December 31, 2023 and 2022, respectively. The Company had working capital of $ 2.2 million at December 31, 2023 and used cash in operations of $ 20.9 million for the year ended December 31, 2023. The higher loss in 2023 was primarily due to a loss on extinguishment of debt in the amount of $ 5.3 million resulting from issuance of a conversion instrument, a repayment fee and elimination of debt discount associated with the paydown of $ 15 million of senior secured debt in February 2023. F- 8 Cadiz Inc. Notes To The Consolidated Financial Statements Cash requirements during the year ended December 31,2023, primarily reflect certain operating and administrative costs related to development of the Company’s land, water, infrastructure and technology assets for water solutions including the Cadiz Water Conservation & Storage Project (“Water Project”), agricultural operations and water filtration business. The Company’s present activities are focused on the development of its assets in ways that meet an urgent need for groundwater storage capacity in Southern California and growing demand for affordable, reliable, long-term water supplies before the next drought strikes the Southwestern United States. On January 30, 2023, the Company completed the sale and issuance of 10,500,000 shares of the Company’s common stock to certain institutional investors in a registered direct offering ( “January 2023 Direct Offering”). The shares of common stock were sold at a purchase price of $ 3.84 per share, for aggregate gross proceeds of $ 40.32 million and aggregate net proceeds of approximately $ 38.5 million. A portion of the net proceeds were used to repay the Company’s debt in the principal amount of $ 15 million, together with fees and interest required to be paid in connection with such repayment. On February 2, 2023, the Company and its wholly-owned subsidiary, Cadiz Real Estate LLC, as borrowers (collectively, the “Borrowers”) entered into a First Amendment to Credit Agreement with BRF Finance Co., LLC (“Lenders”) and B. Riley Securities, Inc., (“BRS”) as administrative agent, to amend certain provisions of the Credit Agreement dated as of July 2, 2021 ( “First Amended Credit Agreement”). Under the First Amended Credit Agreement, the lenders will have a right to convert up to $ 15 million of outstanding principal, plus any PIK interest and any accrued and unpaid interest (the “Convertible Loan”) into shares of the Company’s common stock at a conversion price of $ 4.80 per share (the “Conversion Price”)(see Note 8 – "Long-Term Debt”, below). On March 6, 2024, the Company entered into a Third Amendment to Credit Agreement and First Amendment to Security Agreement (“Third Amended Credit Agreement”) with HHC $ Fund 2012 (“Heerema”). The Third Amended Credit Agreement provides, among other things, (a) a new tranche of senior secured convertible terms loans from Heerema in an aggregate principal amount of $ 20 million, having a maturity date of June 30, 2027 ( “New Secured Convertible Debt”); (b) the aggregate principal amount of the secured non-convertible term loans acquired by Heerema has been increased from $ 20 million to $ 21.2 million and the applicable repayment fee in respect thereof has been eliminated; (c) the Convertible Loan existing prior to the Third Amended Credit Agreement, in an aggregate principal amount of approximately $ 16 million plus interest accruing thereon, has become unsecured; and (d) extension of the maturity date for the existing Convertible Loan and non-convertible loans to June 30, 2027 ( see Note 15 – “Subsequent Events”). The Company may meet its debt and working capital requirements through a variety of means, including extension, refinancing, equity placements, the sale or other disposition of assets, or reductions in operating costs. The covenants in the senior secured debt do not prohibit the Company’s use of additional equity financing and allow the Company to retain 100% of the proceeds of any common equity financing. The Company does not expect the loan covenants to materially limit its ability to finance its water and agricultural development activities. F- 9 Cadiz Inc. Notes To The Consolidated Financial Statements Management assesses whether the Company has sufficient liquidity to fund its costs for the next twelve months from the financial statement issuance date. Management evaluates the Company’s liquidity to determine if there is a substantial doubt about the Company’s ability to continue as a going concern. In the preparation of this liquidity assessment, management applies judgment to estimate the significant assumptions related to the projected cash flows of the Company including the following: (i) projected cash outflows, (ii) projected cash inflows, (iii) categorization of expenditures as discretionary versus non-discretionary and (iv) the ability to raise capital. The cash flow projections are based on known or planned cash requirements for operating costs as well as planned costs for project development. Limitations on the Company’s liquidity and ability to raise capital may adversely affect it. Sufficient liquidity is critical to meet the Company’s resource development activities. Although the Company currently expects its sources of capital to be sufficient to meet its near-term liquidity needs, there can be no assurance that its liquidity requirements will continue to be satisfied. If the Company cannot raise needed funds, it might be forced to make substantial reductions in its operating expenses, which could adversely affect its ability to implement its current business plan and ultimately impact its viability as a company. Principles of Consolidation The consolidated financial statements include the accounts of Cadiz Inc. and all subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The Company applies the equity method of accounting for investments in which the Company has significant influence but not a controlling interest. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In preparing these financial statements, management has made estimates with regard to goodwill and other long-lived assets, stock compensation and deferred tax assets. Actual results could differ from those estimates. Segment Reporting The Company currently operates in two reportable segments based upon its organizational structure and the way in which its operations are managed and evaluated. The Company’s largest segment is Land and Water Resources, which comprises all activities regarding its properties in the eastern Mojave Desert including pre-revenue development of the Water Project (supply, storage and conveyance), and agricultural operations. The Company’s second operating segment is its water filtration technology business, ATEC Water Systems LLC (“ATEC”) which provides innovative water filtration solutions for impaired or contaminated groundwater sources. The Company acquired the assets of ATEC Systems, Inc. in November 2022 into its new subsidiary ATEC. There were intersegment sales of $ 311 thousand during the year ended December 31, 2023, which resulted in an intercompany elimination of profits in the amount of $ 99 thousand. F- 10 Cadiz Inc. Notes To The Consolidated Financial Statements Revenue Recognition The Company’s revenue is currently derived from sales of water filtration systems by ATEC, sales of farm crops, and rental revenue from its agricultural lease. The Company recognizes revenue by following the five -step model under ASC 606 to achieve the core principle that an entity recognizes revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Sales of farm crops are recognized when product is shipped to customers at Cadiz Ranch, and sales at ATEC are recognized when filters are shipped to the customer. Stock-Based Compensation General and administrative expenses include $ 1.5 million and $ 1.9 million of stock-based compensation expenses in the years ended December 31, 2023 and 2022, respectively. Stock-based compensation is generally based upon grants of stock awards, performance stock units (“PSU”) and restricted stock units (“RSU”) to its employees and consultants under the 2019 Equity Incentive Plan. For stock awards, PSUs or RSUs granted, the Company determines the fair value of the stock award, PSUs or RSU at the date of the grant and recognizes the compensation expense over the vesting period. For PSUs or RSUs which vest upon completion of certain milestones, the fair value of the PSU or RSU is recognized when it is probable that the milestone will be achieved. Net Loss Per Common Share Basic net loss per share is computed by dividing the net loss applicable to common stock by the weighted-average common shares outstanding. Options, restricted stock units, convertible debt, convertible preferred shares and warrants were not considered in the computation of net loss per share because their inclusion would have been antidilutive. Had these instruments been included, the fully diluted weighted average shares outstanding would have increased by approximately 5,290,000 shares and 1,814,000 shares for the years ended December 31, 2023 and 2022, respectively. Property, Plant, Equipment and Water Programs Property, plant, equipment and water programs are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, generally five to forty-five years for land improvements and buildings, and five to fifteen years for machinery and equipment. Leasehold improvements are amortized over the shorter of the term of the relevant lease agreement or the estimated useful life of the asset. Water rights, storage and supply programs are stated at cost. Certain costs directly attributable to the development of such programs have been capitalized by the Company. These costs, which are expected to be recovered through future revenues, consist of direct labor, drilling costs, consulting fees for various engineering, hydrological, environmental and additional feasibility studies, and other professional and legal fees. The Company has not commenced depreciation of these assets as they are not yet in service as the Water Project is not operating. While interest on borrowed funds is currently expensed, interest costs related to the construction of water project facilities will be capitalized at the time construction of these facilities commences. F- 11 Cadiz Inc. Notes To The Consolidated Financial Statements Goodwill and Other Intangibles Resulting from Business Acquisitions As a result of a merger in May 1988 between two companies which eventually became known as Cadiz Inc., goodwill in the amount of $ 7,006,000 was recorded. Approximately $ 3,193,000 of this amount was amortized prior to the adoption of Accounting Standards Codification 350, “Intangibles – Goodwill and Other” (“ASC 350” ) on January 1, 2002. In addition, as a result of the ATEC Acquisition (see Note 3 – “Acquisitions”), tax deductible goodwill in the amount of $ 1.9 million was recorded in November 2022. Since the adoption of ASC 350, there have been no goodwill impairments recorded. The reporting units to which $ 5.7 million of goodwill is allocated had a positive carrying amount on December 31, 2023 and 2022. The Company accounts for business combinations using the acquisition method, with the excess of the acquisition cost over the fair value of net tangible assets and identified intangible assets acquired considered goodwill. As a result, the Company discloses goodwill separately from other intangible assets. Other identifiable intangibles related to the ATEC acquisition included non-compete agreements. Contingent consideration arrangements are initially recorded based on management’s best estimate of the amount of contingent consideration that will be realized. Changes in fair value of contingent consideration that are not measurement period adjustments are recognized in earnings. Impairment of Goodwill and Long-Lived Assets The Company assesses long-lived assets, excluding goodwill, for recoverability whenever events or changes in circumstances indicate that their carrying value may not be recoverable through the estimated undiscounted future cash flows resulting from the use of the assets. If it is determined that the carrying value of long-lived assets may not be recoverable, the potential impairment charge is measured by using the projected discounted cash-flow method. No impairment charge was recorded during the current fiscal year. The Company performs an annual impairment test to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any). In performing the impairment test, the Company has the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative assessment for goodwill impairment. If the qualitative assessment indicates that it is more-likely-than- not that the fair value of the reporting unit is less than its carrying value, the Company performs a quantitative assessment. This impairment assessment is performed at least annually in the fourth quarter. An impairment loss will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill in that reporting unit. The Company uses the market approach to assess impairment for the Land and Water Resources reporting unit, as its common stock price is an important component of the fair value calculation. If the Company’s stock price experiences price declines, this will impact the fair value of the reporting unit and could lead to potential impairment charges in future periods. Accordingly, no assurances can be given that the Company will not record an impairment loss on goodwill in the future. The Company uses the income approach to assess impairment for the Water Filtration Technology reporting unit. F- 12 Cadiz Inc. Notes To The Consolidated Financial Statements In the Company’s annual impairment analysis for the fourth quarter 2023, the goodwill was evaluated utilizing a qualitative assessment. Based on this assessment, the Company determined that the fair value of the reporting units was more-likely-than- not greater than its respective carrying value; therefore, no impairment charge was recorded during the current fiscal year. Debt Discount Debt discount created upon the issuance of debt is deferred and amortized over the life of the related loan using the effective interest method and is presented as a reduction of long-term debt. The Company recorded $ 0.7 million of debt discount for the year ended December 31, 2023, and $ 2.4 million for the year ended December 31, 2022. Amortization of debt discounts is included in interest expense on the Consolidated Statement of Operations. Income Taxes Income taxes are provided for using an asset and liability approach which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities at the applicable enacted tax rates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Fair Value of Financial Instruments Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilities with carrying values approximating fair value include accounts payable and accrued liabilities due to their short-term nature. The carrying value of the Company’s secured debt approximates fair value, based on interest rates available to the Company for debt with similar terms. See Note 8 – “Long-Term Debt”, for discussion of fair value of debt. SoCal Hemp JV In July 2019, SoCal Hemp JV LLC (the “JV”) was created by Cadiz Real Estate LLC (a fully owned subsidiary of Cadiz Inc.) and SoCal Hemp Co, LLC (a fully owned subsidiary of Glass House Brands, Inc., which is an unrelated company to Cadiz Inc.) when the two parties entered into a Limited Liability Company Agreement (“LLC Agreement”). The JV was 50% owned by Cadiz Real Estate LLC and 50 % owned by SoCal Hemp Co., LLC (“SCHCO”, together the “Parties”). On December 30, 2022, the Parties entered into an Agreement and Plan of Dissolution of the JV whereby the Company purchased fixed assets with a net book value to the JV of approximately $ 343 thousand for $ 171 thousand and reclaimed the buildings, tenant improvements and machinery and equipment with fair value of approximately $ 1 million which is included in Property, Plant, Equipment and Water Programs at December 31, 2022. F- 13 Cadiz Inc. Notes To The Consolidated Financial Statements Prior to the dissolution of the JV, the carrying value of the investment was approximately $ 1 million. Loss from equity-method investments related to the JV immediately prior to the dissolution totaled $ 171 thousand. At the time of the dissolution, the Company recorded a gain on the dissolution of the JV of approximately $ 211 thousand. Total gain from equity-method investments for the year ended December 31, 2022, was $ 40 thousand. The Company recorded rental income related to the JV of approximately $ 129 thousand for the year ended December 31, 2022. The results of the JV have not been separately recorded in discontinued operations as the results were not material. Supplemental Cash Flow Information During the year ended December 31, 2023, approximately $ 1.6 million in interest payments on the Company’s senior secured debt was paid in cash. There are no scheduled principal payments due on the Current Senior Secured Debt prior to its maturity. At December 31, 2023, accruals for cash dividends payable on the Series A Preferred Stock was $ 1.29 million (see Note 10 – “Common and Preferred Stock”). The cash dividends were paid on January 15, 2024. The balance of cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows is comprised of the following: Cash, Cash Equivalents and Restricted Cash December 31, 2023 December 31, 2022 (in thousands) Cash and Cash Equivalents $ 4,502 $ 9,997 Restricted Cash - 1,288 Long-Term Restricted Cash 134 2,497 Cash, Cash Equivalents and Restricted Cash in the Consolidated Statement of Cash Flows $ 4,636 $ 13,782 The restricted cash amounts primarily represented funds deposited into a segregated account, representing an amount sufficient to pre-fund quarterly dividend payments on Series A Preferred Stock underlying the Depositary Shares issued in the Depositary Share Offering through approximately July 2023. Cash payments for income taxes were $ 11 thousand and $ 7 thousand for the years ended December 31, 2023 and 2022, respectively. F- 14 Cadiz Inc. Notes To The Consolidated Financial Statements Recent Accounting Pronouncements Accounting Guidance Not Yet Adopted In November 2023, the Financial Account Standards Board (“FASB”) issued an accounting standards update which modifies the disclosure and presentation requirements of reportable segments. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within those financial years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing this new guidance and expects this new standard will not have a material impact on the consolidated financial statements. In December 2023, the FASB issued an accounting standards update which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash tax paid in the U.S. and foreign jurisdictions. This update is effective for fiscal years beginning after December 15, 2024. The Company is currently assessing this new guidance and expects this new standard will not have a material impact on the consolidated financial statements. Accounting Guidance Adopted In June 2016, the FASB issued an accounting standards update which introduces new guidance for the accounting for credit losses on certain financial instruments. This update is effective for fiscal years beginning after December 15, 2022, and for interim periods within those fiscal years, with early adoption permitted. The adoption of this new standard on January 1, 2023 had no impact on the Company’s consolidated financial statements. NOTE 3 – ACQUISITIONS On November 9, 2022, the Company completed the acquisition of the assets of ATEC Systems, Inc. into ATEC Water Systems, LLC (“ATEC”), a water filtration technology company, at a purchase price of up to $ 2.2 million (“ATEC Acquisition”). The ATEC Acquisition is intended to enable the Company to assist water agencies in increasing supplies of potable water from contaminated groundwater sources. The table below summarizes the fair value of assets acquired and liabilities Assumed in the ATEC Acquisition: ($ in thousands) ASSETS Inventory 80 Property, plant and equipment 169 Identifiable intangibles 50 Goodwill 1,901 Total estimated purchase price $ 2,200 F- 15 Cadiz Inc. Notes To The Consolidated Financial Statements The impact of the ATEC Acquisition, which is a new water filtration technology segment for the Company, was not material to the proforma net revenue or net income of the Company’s combined operations for the year ended December 31, 2022. Net revenue and net income related to ATEC post-acquisition were not material to the Consolidated Statements of Income for the year ended December 31, 2022. The Company recorded a contingent consideration liability in the amount of $ 1.45 million related to the purchase price of the ATEC Acquisition for amounts payable upon the sale of a requisite number of water filtration units under an asset purchase agreement. Following the acquisition, the Company entered into an agreement to grant 200,000 Class P Units of ATEC to the new Chief Operating Officer of ATEC which vest ratably on an annual basis over three years. These units provide for a 20 % profit participation in ATEC following a return to the Company of its initial $ 2.2 million investment. NOTE 4 – REPORTABLE SEGMENTS We evaluate our performance based on segment operating (loss). Interest expense, income tax expense and losses related to equity method investments are excluded from the computation of operating (loss) for the segments. Segment net revenue, segment operating expenses and segment operating (loss) information consisted of the following for the year ended December 31, 2023: Year Ended December 31, 2023 (in thousands) Land and Water Resources Water Filtration Technology Total Total revenues 1,251 740 1,991 Costs and expenses: Cost of sales 2,241 646 2,887 General and administrative 18,042 755 18,797 Depreciation 1,096 151 1,247 Total costs and expenses 21,379 1,552 22,931 Operating loss $ ( 20,128 ) $ ( 812 ) $ ( 20,940 ) The Company only operated in one segment during the year ended December 31, 2022, as the water filtration technology segment did not exist prior to the ATEC Acquisition in November 2022. Assets by operating segment, inclusive of goodwill, are as follows (dollars in thousands): December 31, 2023 December 31, 2022 Operating Segment: Water and Land Resources $ 101,946 $ 107,439 Water Filtration Technology 5,428 3,348 $ 107,374 $ 110,787 F- 16 Cadiz Inc. Notes To The Consolidated Financial Statements Goodwill by operating segment is as follows (dollars in thousands): December 31, 2023 December 31, 2022 Operating Segment: Water and Land Resources $ 3,813 $ 3,813 Water Filtration Technology 1,901 1,901 $ 5,714 $ 5,714 Property, plant, equipment and water programs consist of the following (dollars in thousands): December 31, 2023 Water and Land Resources Water Filtration Technology Land and land improvements $ 32,357 $ - Water programs 29,209 - Pipeline 22,096 - Buildings 1,730 - Leasehold improvements, furniture and fixtures 1,605 4 Machinery and equipment 3,719 210 Construction in progress 5,664 - 96,380 214 Less accumulated depreciation ( 9,238 ) ( 139 ) $ 87,142 $ 75 December 31, 2022 Water and Land Resources Water Filtration Technology Land and land improvements $ 30,579 $ - Water programs 29,210 - Pipeline 22,091 - Buildings 1,715 - Leasehold improvements, furniture and fixtures 1,606 3 Machinery and equipment 3,229 166 Construction in progress 3,680 - 92,110 169 Less accumulated depreciation ( 8,141 ) - $ 83,969 $ 169 F- 17 Cadiz Inc. Notes To The Consolidated Financial Statements NOTE 5 – PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS Property, plant, equipment and water programs consist of the following (dollars in thousands): December 31, 2023 2022 Land and land improvements $ 32,357 $ 30,579 Water programs 29,209 29,210 Pipeline 22,096 22,091 Buildings 1,730 1,715 Leasehold improvements, furniture and fixtures 1,609 1,609 Machinery and equipment 3,929 3,395 Construction in progress 5,664 3,680 96,594 92,279 Less accumulated depreciation ( 9,377 ) ( 8,141 ) $ 87,217 $ 84,138 Land and land improvements primarily include land acquisitions, well development, irrigation systems and other related land infrastructure. Water programs primarily include costs directly attributable to the Company’s water project development efforts, including consulting fees for various engineering, hydrological, environmental and additional feasibility studies, and other professional and legal fees. During the year ended December 31, 2023, $ 1,906,000 of construction in progress was placed into service, which included land development, irrigation systems and stand establishment related to the planting of 150 acres of alfalfa. Depreciation expense on land improvements, buildings, leasehold improvements, machinery and equipment and furniture and fixtures was $ 1.25 million and $ 0.7 million for the twelve months ended December 31, 2023 and 2022, respectively. NOTE 6 – OTHER ASSETS Other assets include the following (dollars in thousands): December 31, 2023 2022 Prepaid rent $ 4,366 $ 4,481 Deposits and other 1,072 549 $ 5,438 $ 5,030 Prepaid rent primarily consists of fees incurred to obtain the rights-of-way for the Water Project. Amortization of prepaid rent was approximately $ 115,000 for each of the years ended December 31, 2023 and 2022. F-18 Cadiz Inc. Notes To The Consolidated Financial Statements NOTE 7 – ACCRUED LIABILITIES At December 31, 2023 and 2022, accrued liabilities consist of the following (dollars in thousands): December 31, 2023 2022 Payroll, bonus, and benefits $ 90 $ 88 Legal and consulting 284 403 Water project and well development 146 794 Other accrued expenses 650 260 $ 1,170 $ 1,545 NOTE 8 – LONG-TERM DEBT At December 31, 2023 and 2022, the carrying amount of the Company’s outstanding debt is summarized as follows (dollars in thousands): December 31, 2023 2022 Senior secured debt due $ 21,200 $ 50,000 Interest rate of 7 % per annum Convertible note instrument due 16,895 - Interest rate of 7 % per annum Other loans 352 287 Debt discount and debt issuance costs, net of accumulated accretion ( 554 ) ( 1,198 ) Total outstanding long-term debt 37,893 49,089 Less current portion 182 139 Total outstanding debt $ 37,711 $ 48,950 The carrying value of the Company’s Senior Secured Debt is approximately $ 19.1 million. The carrying value of the Company's convertible note instrument approximates fair value. Pursuant to the Company’s loan agreements, annual maturities of long-term debt outstanding on December 31, 2023, are as follows: F- 19 Cadiz Inc. Notes To The Consolidated Financial Statements Year Ending December 31 ($ in thousands) 2024 $ 182 2025 119 2026 38,146 2027 - 2028+ - Total $ 38,447 .On July 2, 2021, the Company entered into a $ 50 million senior secured credit agreement (“Credit Agreement”) with Lenders and BRS, as administrative agent for the Lenders (“Current Senior Secured Debt”). Interest is paid quarterly at a rate of seven percent per annum. The obligations under the Current Senior Secured Debt are secured by substantially all of the Company’s assets on a first -priority basis. In connection with any repayment or prepayment of the debt, the Company is required to pay a repayment fee equal to the principal amount being repaid or prepaid, multiplied by 6.0 %. At any time, the Company will be permitted to prepay the principal of the debt, in whole or in part, provided that such prepayment is accompanied by any accrued interest on such principal amount being prepaid plus the applicable repayment fee described above. On February 2, 2023, the Company entered into a First Amendment to Credit Agreement to amend certain provisions of the Credit Agreement (“First Amended Credit Agreement”). In connection with the First Amended Credit Agreement, the Company repaid $ 15 million of the Senior Secured Debt together with fees and interest required to be paid in connection with such repayment under the Credit Agreement. Under the First Amended Credit Agreement, the lenders have a right to convert up to $ 15 million of outstanding principal, plus any PIK interest and any accrued and unpaid interest (the “Convertible Loan”) into shares of the Company’s common stock at a conversion price of $ 4.80 per share (the “Conversion Price”). Additionally, the maturity date of the Credit Agreement was extended from July 2, 2024 to June 30, 2026. The annual interest rate remains unchanged at 7.00 %. Interest on $ 20 million of the principal amount will be paid in cash. Interest on the $ 15 million principal amount of the Convertible Loan will be paid in kind on a quarterly basis by addition such amount to the outstanding principal amount of the outstanding Convertible Loan. The amendment was recorded as a debt extinguishment. As a result of the First Amended Credit Agreement, the Company bifurcated the new conversion option from the debt and recorded a derivative liability. As of the effective date of the First Amended Credit Agreement, the derivative liability had a fair value of approximately $ 2.4 million which was recorded as loss on early extinguishment of debt. In addition, the loss on early extinguishment of debt included $ 2.0 million of repayment fees for both repaid and amended principal and $ 980 thousand of unamortized debt issuance costs. The fair value of the derivative liability was remeasured each reporting period using an option pricing model, and the change in fair value was recorded as an adjustment to the derivative liability with the change in fair value recorded as income or expense. On August 14, 2023, the Credit Agreement was further amended to remove a conversion exchange cap provision (“Second Amended Credit Agreement”). As a result of the Second Amended Credit Agreement, the Company reclassified the carrying value of the bifurcated conversion option at the time of the modification from a derivative liability in the amount of $ 2.57 million to additional paid-in capital. Total unrealized losses of derivative liabilities accounted for as derivatives prior to the Second Amended Credit Agreement were $ 220 thousand for the year ended December 31, 2023. F- 20 Cadiz Inc. Notes To The Consolidated Financial Statements On March 6, 2024, the Company entered into a Third Amendment to Credit Agreement and First Amendment to Security Agreement (“Third Amended Credit Agreement”) with HHC $ Fund 2012 (“Heerema”). The Third Amended Credit Agreement provides, among other things, (a) a new tranche of senior secured convertible terms loans from Heerema in an aggregate principal amount of $ 20 million, having a maturity date of June 30, 2027 ( “New Secured Convertible Debt”); (b) the aggregate principal amount of the secured non-convertible term loans acquired by Heerema has been increased from $ 20 million to $ 21.2 million and the applicable repayment fee in respect thereof has been eliminated; (c) the Convertible Loan existing prior to the Third Amended Credit Agreement, in an aggregate principal amount of approximately $ 16 million plus interest accruing thereon, has become unsecured; and (d) extension of the maturity date for the existing Convertible Loan and non-convertible loans to June 30, 2027. In the event of certain asset sales, the incurrence of indebtedness or a casualty or condemnation event, in each case, under certain circumstances as described in the Credit Agreement, the Company will be required to use a portion of the proceeds to prepay amounts under the debt. In the event of any additional issuance of depositary receipts (“Depositary Receipts”) representing interests in shares of 8.875 % Series A Cumulative Perpetual Preferred Stock (“Series A Preferred Stock”) by the Company, the Company will be required to, within five business days after the receipt of the net cash proceeds, apply 75 % of the net cash proceeds to prepay amounts due under the debt (including the applicable repayment fee described above). The Credit Agreement includes customary affirmative and negative covenants, including delivery of financial statements and other reports. The negative covenants limit the ability of the Company to, among other things, incur debt, incur liens, make investments, sell assets, pay dividends and enter into transactions with affiliates. In addition, the Credit Agreement includes customary events of default and remedies. In connection with the issuance of the Current Senior Secured Debt, on July 2, 2021 ( the “Original Issue Date”) the Company issued to the Lenders two warrants (“A Warrants” and “B Warrants”), each granting an option to purchase 500,000 shares of the Company’s common stock (collectively, the “Warrants”). The A Warrants may be exercised any time prior to July 2, 2024 ( the “Expiration Date”) and have an exercise price of $ 17.38 equal to 120 % of the closing price per share of the Company’s common stock on the Original Issue Date. The B Warrants may be exercised in the period from 180 days after the Original Issue Date to the Expiration Date and have an exercise price of $ 21.72 equal to 150 % of the closing price of the Company’s common stock on the Original Issue Date. As a result of the issuance of the Warrants, which met the criteria for equity classification under applicable GAAP, the Company recorded additional paid-in capital in the amount of $ 1.9 million which was the fair value of the Warrants on the issuance date. In addition, the fair value of the Warrants was recorded as debt discount and is being amortized over the term of the Current Senior Secured Debt. F- 21 Cadiz Inc. Notes To The Consolidated Financial Statements NOTE 9 – INCOME TAXES Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities and available carryforwards. Temporary differences and carryforwards which gave rise to a significant portion of deferred tax assets and liabilities as of December 31, 2023 and 2022 are as follows (dollars in thousands): December 31, 2023 2022 Deferred tax assets: Net operating losses $ 75,727 $ 69,537 Fixed asset basis difference 4,738 4,599 Contributions carryover 29 48 Deferred compensation 157 695 Accrued liabilities and other 796 358 Total deferred tax assets 81,447 75,237 Valuation allowance for deferred tax assets ( 81,447 ) ( 75,237 ) Net deferred tax asset $ - $ - The change in deferred tax assets resulted from current year net operating losses and changes to future tax deductions resulting from expiring net operating losses, terms of stock compensation plans, fixed assets, and accrued liabilities. A full valuation allowance continues to be recorded given the Company continues to be incurring losses. As of December 31, 2023, the Company had net operating loss (NOL) carryforwards of approximately $ 334 million for federal income tax purposes and $ 309 million for California income tax purposes. Such carryforwards expire in varying amounts through the year 2037 and 2043 for federal and California purposes, respectively. For federal losses arising in tax years ending after December 31, 2017, the NOL carryforwards are allowed indefinitely. Use of the carryforward amounts is subject to an annual limitation as a result of a previous ownership change and a tax ownership change that occurred in June of 2021. The Company’s tax years 2020 through 2023 remain subject to examination by the Internal Revenue Service, and tax years 2019 through 2023 remain subject to examination by California tax jurisdictions. In addition, the Company’s loss carryforward amounts are generally subject to examination and adjustment for a period of three years for federal tax purposes and four years for California purposes, beginning when such carryovers are utilized to reduce taxes in a future tax year. F- 22 Cadiz Inc. Notes To The Consolidated Financial Statements A reconciliation of the income tax benefit to the statutory federal income tax rate is as follows (dollars in thousands): 2023 2022 Expected federal income tax benefit at 21% $ ( 6,602 ) $ ( 5,205 ) Increase (decrease) in valuation allowance 4,433 3,906 State income tax 11 7 Expiring carryforwards 933 577 Non-deductible expenses and other 1,236 722 Income tax expense $ 11 $ 7 Because it is more likely than not that the Company will not realize its net deferred tax assets, it has recorded a full valuation allowance against these assets. Accordingly, no deferred tax asset has been recorded in the accompanying balance sheet. NOTE 10 – COMMON AND PREFERRED STOCK Common Stock The Company is authorized to issue 85 million shares of Common Stock at a $ 0.01 par value. As of December 31, 2023, and December 31, 2022, the Company had 66,710,795 and 55,823,810 shares issued and outstanding, respectively. During 2022, the Company completed the sale and issuance of 11,857,140 shares of its common stock to certain institutional and individual investors in two registered direct offerings with net proceeds totaling $ 21.6 million. During 2023, the Company completed the sale and issuance of 10,500,000 shares of its common stock to certain institutional investors in a registered direct offering with net proceeds totaling $ 38.5 million. In January 2013, the Company revised its then existing agreement with the law firm of Brownstein Hyatt Farber Schreck LLP (“Brownstein Agreement”), a related party. Under the Brownstein Agreement, the Company was to issue up to a total of 400,000 shares of the Company’s common stock. 200,000 of these shares had been issued as of December 31, 2023 and 200,000 shares were to be earned upon the achievement of certain milestones. Effective December 31, 2023, the unearned milestone shares were cancelled upon termination of the Brownstein Agreement. Additionally, the Company incurred direct expenses to Brownstein of approximately $ 0.8 million and $ 1.5 million in 2023 and 2022, respectively. F- 23 Cadiz Inc. Notes To The Consolidated Financial Statements Series 1 Preferred Stock The Company has issued a total of 10,000 shares of Series 1 Preferred Stock (“Series 1 Preferred Stock”) to certain holders (“Holders”) under certain conversion and exchange agreements entered into in March 2020. Each share of Series 1 Preferred Stock is convertible at any time at the option of the Holder into 405.05 shares of Common Stock. As of December 31, 2023, Holders of Series 1 Preferred Stock exercised their option to convert 9,671 shares of Series 1 Preferred Stock into 3,917,235 shares of Common Stock. The Company has 329 shares of Series 1 Preferred Stock issued and outstanding as of December 31, 2023. Series A Preferred Stock On June 29, 2021, the Company entered into an Underwriting Agreement with BRS as representative of the several underwriters named there, to issue and sell an aggregate of 2,000,000 depositary shares (the “Depositary Shares”), as well as up to 300,000 Depositary Shares that may be sold pursuant to the exercise of an option to purchase additional Depositary Shares (“Depositary Share Offering”), each representing 1/1000 th of a share of the 8.875 % Series A Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”). The Depositary Share Offering was completed on July 2, 2021 for net proceeds of approximately $ 54 million. On July 1, 2021, the Company filed the Certificate of Designation (“Certificate of Designation”) for the Series A Preferred Stock with the Secretary of State of the State of Delaware, which became effective upon acceptance for record. The Certificate of Designation classified a total of 7,500 shares of the Company’s authorized shares of preferred stock, $ 0.01 par value per share, as Series A Preferred Stock. As set forth in the Certificate of Designation, the Series A Preferred Stock will rank, as to dividend rights and rights upon the Company’s liquidation, dissolution or winding up: (i) senior to Common Stock of the Company; (ii) junior to the Series 1 Preferred Stock with respect to the distribution of assets upon the Company’s voluntary or involuntary liquidation, dissolution or winding up; (iii) senior to the Series 1 Preferred Stock with respect to the payment of dividends and (iv) effectively junior to all the Company’s existing and future indebtedness (including indebtedness convertible into Common Stock or preferred stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by others in) the Company’s existing or future subsidiaries. Holders of Series A Preferred Stock, when and as authorized by the Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of 8.875 % of the $ 25,000.00 ($ 25.00 per Depositary Share) liquidation preference per year (equivalent to $ 2,218.75 per share per year or $ 2.21875 per Depositary Share per year). Dividends will be payable quarterly in arrears, on or about the 15 th of January, April, July and October, beginning on or about October 15, 2021. As of December 31, 2023, the Company has paid cash dividends in the amount of $ 11,661,000 . On December 21, 2023, the Company’s Board of Directors declared that holders of Series A Preferred stock will receive a cash dividend equal to $ 560.00 per whole share; therefore, holders of Depositary Shares will receive a cash dividend equal to $ 0.56 per Depositary Share. The dividend was paid on January 15, 2024 to respective holders of record as of the close of business on January 4, 2024. F- 24 Cadiz Inc. Notes To The Consolidated Financial Statements At the issuance of the Series A Preferred Stock, the Company pre-funded eight quarterly payments through July 2023 in a segregated account which appeared as Restricted Cash on the Balance Sheet. Dividends on the Series A Preferred Stock underlying the depositary shares will continue to accumulate whether or not (i) any of the Company’s agreements prohibit the current payment of dividends, (ii) the Company has earnings or funds legally available to pay the dividends, or (iii) the Company’s Board of Directors does not declare the payment of the dividends. Holders of depositary shares representing interests in the Series A Preferred Stock generally will have no voting rights. However, if the Company does not pay dividends on any outstanding shares of Series A Preferred Stock for six or more quarterly dividend periods (whether or not declared or consecutive), holders of the Series A Preferred Stock (voting separately as a class with all other outstanding series of preferred stock upon which like voting rights have been conferred and are exercisable) will be entitled to elect two additional directors to the Board of Directors to serve until all unpaid dividends have been fully paid or declared and set apart for payment. On and after July 2, 2026, the shares of Series A Preferred Stock will be redeemable at the Company’s option, in whole or in part, at a redemption price equal to $ 25,000.00 per share ($ 25.00 per Depositary Share), plus any accrued and unpaid dividends. Furthermore, upon a change of control or delisting event (each as defined in the Certificate of Designation), the Company will have a special option to redeem the Series A Preferred Stock at $ 25,000.00 per share ($ 25.00 per Depositary Share), plus any accrued and unpaid dividends. Shares of Series A Preferred Stock are convertible into shares of Common Stock if, and only if, a change of control or delisting event (each as defined in the Certificate of Designation) has occurred, and the Company has not elected to redeem the Series A Preferred Stock prior to the applicable conversion date. Upon any conversion, each share of Series A Preferred Stock will be converted into that number of shares of Common Stock equal to the lesser of (i) the quotient obtained by dividing (A) the sum of ( x ) the $ 25,000 liquidation preference per share plus (y) the amount of an accrued and unpaid dividends to, but not including, the conversion date by (B) the Common Stock Purchase Price (as defined in the Certificate of Designation), and (ii) 3,748.13 (the “Share Cap”), subject to certain adjustments. The Company has 2,300 shares of Series A Preferred Stock issued and outstanding as of December 31, 2023. NOTE 11 – STOCK-BASED COMPENSATION PLANS The Company has issued options and has granted stock awards pursuant to its 2019 Equity Incentive Plan, as described below. 2019 Equity Incentive Plan The 2019 Equity Incentive Plan (as amended, the “2019 EIP”) was originally approved by stockholders at the July 10, 2019 Annual Meeting, with an amendment to the plan approved by stockholders at the July 12, 2022 Annual Meeting. The plan, as amended, provides for the grant and issuance of up to 2,700,000 shares and options to the Company’s employees, directors and consultants. F- 25 Cadiz Inc. Notes To The Consolidated Financial Statements Effective July 1, 2021, under the 2019 EIP, each outside director receives $ 75,000 of cash compensation and receives a deferred stock award consisting of shares of the Company’s common stock with a value equal to $ 25,000 on June 30 of each year. The award accrues on a quarterly basis, with $ 18,750 of cash compensation and $ 6,250 of stock earned for each fiscal quarter in which a director serves. The deferred stock award vests automatically on the January 31 that first follows the award date. Stock Awards to Directors, Officers, Consultants and Employees The Company has granted stock awards pursuant to its 2019 EIP. Of the total 2,700,000 shares reserved under the 2019 EIP, 2,333,739 shares and restricted stock units (“RSUs”) have been awarded to the Company’s directors, employees and consultants as of December 31, 2023. 825,000 RSUs were granted to employees in April 2021 as long-term equity incentive awards ( “April 2021 RSU Grant”). Of the 825,000 RSUs granted under the April 2021 RSU Grant, 510,000 RSUs were scheduled to vest upon completion of certain milestones, including (a) 255,000 RSUs which vested in July 2021 upon completion of refinancing of the Company’s then existing senior secured debt and funding to complete the purchase of the northern Pipeline (“ Northern Pipeline Vesting Event”), and (b) 255,000 RSUs scheduled to vest upon completion of final binding water supply agreement(s) for the delivery of at least 9,500 acre-feet of water per annum to customers (“Supply Agreement Vesting Event”). 170,000 RSUs, including 85,000 related to the Supply Agreement Vesting Event, were accelerated and became fully vested as a result of an amended employee agreement entered into in February 2022 upon the change of the Executive Chair, 60,000 RSUs vested and were issued on January 3, 2023, and 170,000 RSUs vested and were issued on March 1, 2023. 85,000 of the RSUs related to the Supply Agreement Vesting Event were cancelled effective December 31, 2023 and the remaining 85,000 shares related to the Supply Agreement Vesting Event vested in March 2024. Additionally, in July 2022, 60,000 RSUs were granted to employees as long-term equity incentive awards ( “July 2022 RSU Grant”). The RSUs granted under the July 2022 RSU Grant vested on January 2, 2024. The RSU incentive awards are subject in each case to continued employment with the Company through the vesting date. Of the 255,000 RSUs earned and issued in July 2021 upon the Northern Pipeline Vesting Event, the Company issued 158,673 shares net of taxes withheld and paid in cash by the Company. Of the 170,000 RSUs issued on March 1, 2023, the Company issued 102,871 shares net of taxes withheld and paid in cash by the Company. The Company issued 450,000 performance stock units (“PSUs”) upon achievement of certain performance events. The PSUs vest upon the Company’s common stock achieving price hurdles (“Price Hurdles”) but not sooner than three years from date of grant, including (a) 200,000 PSUs to vest upon a Price Hurdle of $ 7 per share, (b) 150,000 PSUs to vest upon a Price Hurdle of $ 9 per share, (c) 50,000 PSUs to vest upon a Price Hurdle of $ 11 per share, and (d) 50,000 PSUs to vest upon a Price Hurdle of $ 13 per share and are payable, at the option of the Compensation Committee, in either common stock or cash. The PSU incentive award is subject to continued employment with the Company through the vesting date. F- 26 Cadiz Inc. Notes To The Consolidated Financial Statements Additionally, 400,000 RSUs were granted to a consultant on July 1, 2023 ( “July 2023 RSU Grant). Of the 400,000 RSUs granted under the July 2023 RSU Grant, 200,000 RSUs were vested in March 2024 upon completion of the Third Amended Credit Agreement and Assignment discussed in Note 15 – “Subsequent Events”, below. Of the remaining 200,000 RSUs granted, 100,000 RSUs vested and were issued on October 1, 2023, and 100,000 vested and were issued on February 1, 2024. A summary of RSU activity under the plans during the years ended December 31, 2023 and 2022 is presented below: Weighted- Average Grant-date Shares Fair Value Nonvested at December 31, 2021 634,247 $ 11.14 Granted 219,878 $ 2.22 Forfeited or canceled - $ - Vested ( 310,501 ) $ 8.75 Nonvested at December 31, 2022 543,624 $ 8.90 Granted 603,884 $ 3.85 Forfeited or canceled ( 90,315 ) $ 10.75 Vested ( 468,116 ) $ 7.19 Nonvested at December 31, 2023 589,077 $ 4.80 As of December 31, 2023, the Company had approximately $ 315 thousand of unrecognized stock compensation expense related to nonvested PSUs and RSUs. NOTE 12 – COMMITMENTS AND CONTINGENCIES In the normal course of its agricultural operations, the Company handles, stores, transports and dispenses products identified as hazardous materials. Regulatory agencies periodically conduct inspections and, currently, there are no pending claims with respect to hazardous materials. Pursuant to cost-sharing agreements that have been entered into by participants in the Company’s Water Project, $ 625,000 in funds have been received in order to offset costs incurred in the environmental analysis of the Water Project. These funds may either be reimbursed or credited to participants participation in the Water Project and, accordingly, are fully reflected as deferred revenue as of December 31, 2023 and December 31, 2022. F- 27 Cadiz Inc. Notes To The Consolidated Financial Statements The Company recorded a contingent consideration liability in the amount of $ 1.45 million related to the purchase price of the ATEC Acquisition for amounts payable upon the sale of a requisite number of water filtration units under an asset purchase agreement. The Company is from time to time involved in various lawsuits and legal proceedings that arise in the ordinary course of business. At this time, the Company is not aware of any other pending or threatened litigation that it expects will have a material adverse effect on its business, financial condition, liquidity, or operating results. Legal claims are inherently uncertain, however, and it is possible that the Company’s business, financial condition, liquidity and/or operating results could be adversely affected in the future by legal proceedings. NOTE 13 – LEASES The Company has operating leases for its corporate offices and office equipment. The Company’s leases have remaining lease terms of 1 month to 34 months as of December 31, 2023, some of which include options to extend or terminate the lease. However, the Company is not reasonably certain to exercise options to renew or terminate, and therefore renewal and termination options are not included in the lease term. The Company’s lease population does not include any residual value guarantees, and therefore none were considered in the calculation of the lease balances. The Company has leases with variable payments, most commonly in the form of common area maintenance charges which are based on actual costs incurred. These variable payments were excluded from the right-of-use asset and lease liability balances since they are not fixed or in-substance fixed payments. The Company elected to utilize the practical expedients permitted within the leasing standard, including the practical expedient not to reassess existing land easements, which among other things, allows the Company to carryforward the historical lease classification. The Company has lease agreements with lease and non-lease components and has elected the practical expedient to account for lease and non-lease components as a single lease component for real-estate class of leases only. For leases with terms greater than 12 months, the Company records the related asset and lease liability at the present value of lease payments over the lease term. Leases with an initial term of 12 months or less with purchase options or extension options that are not reasonably certain to be exercised are not recorded on the Consolidated Balance Sheets; the Company recognizes lease expense for these leases on a straight-line basis over the term of the lease. Lease balances . Amounts recognized in the accompanying consolidated balance sheet as of December 31, 2023 and 2022 are as follows (in thousands): F- 28 Cadiz Inc. Notes To The Consolidated Financial Statements As of December 31, 2023 Activity Balance Sheet Location Balance ROU assets Other assets $ 431 Short-term lease liability Other liabilities $ 127 Long-term lease liability Other long-term liabilities $ 318 As of December 31, 2022 Activity Balance Sheet Location Balance ROU assets Other assets $ 553 Short-term lease liability Other liabilities $ 109 Long-term lease liability Other long-term liabilities $ 444 Lease cost. The Company’s operating lease cost for the year ended December 31, 2023 was $ 180 thousand. Lease commitments. The table below summarizes the Company’s scheduled future minimum lease payments under operating, recorded on the balance sheet as of December 31, 2023 ( in thousands): 2024 $ 172 2025 192 2026 160 2027 - 2028+ - Total lease payments 524 Less: Imputed interest ( 79 ) Present value of lease payments 445 Less: current maturities of lease obligations ( 127 ) Long-term lease obligations $ 318 Most of the Company’s lease agreements do not provide a readily determinable implicit rate nor is it available to us from its lessors. Instead, the Company estimates its incremental borrowing rate based on information available at either the implementation date of Topic 842 or at lease commencement for leases entered into thereafter in order to discount lease payments to present value. The table below presents additional information related to the Company’s leases as of December 31, 2023: Weighted Average Remaining Lease Term Operating leases (in years) 3 Weighted Average Discount Rate Operating leases 12 % As a lessor, in February 2016, the Company entered into a lease agreement with Fenner Valley Farms LLC (“FVF”) (the “lessee”), pursuant to which FVF is leasing, for a 99 -year term, 2,100 acres owned by Cadiz in San Bernardino County, California, to be used to plant, grow and harvest agricultural crops (“FVF Lease Agreement”). As consideration for the lease, FVF paid the Company a one -time payment of $ 12.0 million upon closing. The Company expects to record rental income of $ 420 thousand annually over the next five years related to the FVF Lease Agreement. F- 29 Cadiz Inc. Notes To The Consolidated Financial Statements NOTE 14 – FAIR VALUE MEASUREMENTS Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. The Company considers a security that trades at least weekly to have an active market. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In 2022, the Company recorded a contingent consideration liability in the amount of $ 1.45 million related to the purchase price of the ATEC Acquisition for amounts payable upon the sale of a requisite number of water filtration units under an asset purchase agreement. (in thousands) Level 1 Assets Balance at December 31, 2022 $ - Investments in Certificates of Deposit 3,000 Balance at December 31, 2023 $ 3,000 (in thousands) Level 3 Liabilities Balance at December 31, 2022 $ ( 1,450 ) Derivative liabilities ( 2,350 ) Unrealized losses on derivative liabilities, net ( 220 ) Reclassification of derivative liabilities to additional paid-in capital 2,570 Balance at December 31, 2023 $ ( 1,450 ) Investments at Fair Value as of December 31, 2023 (in thousands) Level 1 Level 2 Level 3 Total Assets Certificates of Deposit $ 3,000 $ - $ - $ 3,000 Total Assets $ 3,000 $ - $ - $ 3,000 Liabilities Contingent consideration liabilities $ - $ - $ 1,450 $ 1,450 Total Liabilities $ - $ - $ 1,450 $ 1,450 F- 30 Cadiz Inc. Notes To The Consolidated Financial Statements NOTE 15 – SUBSEQUENT EVENTS On March 6, 2024, the Company entered into a Third Amendment to Credit Agreement and First Amendment to Security Agreement (“Third Amended Credit Agreement”) with HHC $ Fund 2012 (“Heerema”). Before entering into the Third Amended Credit Agreement, Heerema purchased the outstanding secured non-convertible term loans under the Credit Agreement (“Assignment”). In connection with the Assignment, the existing holders of both the Convertible Loan and non-convertible term loans consented to effectuate the Third Amended Credit Agreement in consideration of a consent fee in the aggregate amount of $ 479,845 payable in the form of our common stock (valued at $ 2.89 per share, or 166,036 shares), which will be registered pursuant to a shelf registration statement on Form S- 3 and a prospectus supplement thereunder. The Third Amended Credit Agreement provides, among other things, (a) a new tranche of senior secured convertible terms loans from Heerema in an aggregate principal amount of $ 20 million, having a maturity date of June 30, 2027 ( “New Secured Convertible Debt”); (b) the aggregate principal amount of the secured non-convertible term loans acquired by Heerema has been increased from $ 20 million to $ 21.2 million and the applicable repayment fee in respect thereof has been eliminated; (c) the Convertible Loan existing prior to the Third Amended Credit Agreement, in an aggregate principal amount of approximately $ 16 million plus interest accruing thereon, has become unsecured; and (d) extension of the maturity date for the existing Convertible Loan and non-convertible loans to June 30, 2027. F-31